China urbanization must focus on helping migrants

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Qingdao city in China

BEIJING (Caixin Online) — Urbanization has been a hot-button topic since the Communist Party’s 18th National Congress in November, as it has been identified as the most important public policy direction for the new government.

What policy-makers noticed is that urbanization might hold the key for the next phase of development. In 2011, the country’s urbanization rate hit 51.27%. This means that for the first time in history, more of China’s population lives in cities than in rural areas.

The core of urbanization lies not only in large-scale city building and expansion of industrial parks, but also in the great migration of people from farm villages into cities.

In 2011, the total number of migrant workers moving into cities hit 253 million. The reasons are simple: There are more opportunities, a more comfortable life, better education, better hospitals, more convenient communications and more cultural diversity in cities. And there is more money, too.

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The Chinese rural per capita income in 2011 was 6,977 yuan ($1,118), much lower than even the per capita disposable income in urban areas that year, 21,810 yuan
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For these reasons, most rural migrants never plan to return to their villages.

Without plans to turn rural workers into urban citizens, urbanization can only become yet another round of massive land grabbing and city-building that has happened around the country for the last decade.

This will create more people without roots who can neither integrate with their new urban environment nor return to their village. The next phase will no longer be only urbanization of the land, but of people.

Locked land

Many migrants enter cities as low-end laborers. The first thing they lack upon arrival is enough money to set themselves up in the city. Their most important possession — land — cannot be used in their process of turning into an urban dweller.

Under the current land system, farmers have use rights of two kinds of land. The first is land contracted out for agricultural production, and the second is land needed to construct a homestead. The ownership for both of these parcels is held by the village collective.

The Contracting of Rural Land Law of 2003 for the first time gave farmers the legal guarantee of contracted use right for 30 years, and it also allowed them to transfer contracted land, transfer titles of land and rent land.

On the other hand, the sale and rental of homesteading land has long been legally restricted. Only if the village collective agrees can a farmer transfer his title, but then only within the village, never on the open market. The property rights of Chinese farmers have thus been confined within their land.

For farmers living near urban areas, the value of their land has grown as cities have expanded. The single method available to these peasants to legally profit from their land is to sell it to the government.

The law stipulates that any land demarcated for urban expansion is the property of the state. Only after peasant land has been expropriated by the government can commercial properties be built upon. In this monopolistic market, city governments buy land cheap and sell high, making massive profits in the transaction.

The low remuneration for expropriated land has come under intense scrutiny of late.

Huang Xiaohu, vice chair of the China Land Science Society, said that when the government takes agricultural land, whether it is slated for a construction of a building for public services or for commercial projects, its original users are compensated based on a multiple of the agricultural output of the plot, not the market price of the land. Prices are fixed by the government, and peasants have no say.

Excessively low compensation for land has become the source of heated conflict. In 2011, approximately half of all collective incidents were set off by local governments forcing people off of their land.

Excessively low land compensation costs have also been a cause of the low efficiency of urban development.

Huang said that as the low costs of expropriating rural land made the government unwilling to tackle urban land with development potential, which involves more expensive spending on relocation. The result is expanding cities — the per capita land area in Chinese cities was 134 in 2008, or 14% larger than in 2008.

“The result of expanding [cities] is wasted or poorly used land,” said Huang, who thinks that urban expansion has resulted not only in the waste of arable land, but also in water scarcity, pressure on electrical grids, environmental pollution, urban areas overrunning into surrounding wilderness and other problems.

Land problem also exist in rural villages.

The urbanization process can solve China’s traditional problem of many people and little land. Academics have often described the happy future of farm villages and agricultural development: as excess labor transitions into cities, land will become continuously concentrated in the hands of professional farmers, who will systematize and modernize their operations.

Some farmers, say those academics, will use their modernized operations to climb into the middle class.

But that is not how things are really going.

“Family farms in some regions are indeed becoming appropriately systematized,” said Liu Shouying, a researcher in the Rural Department of the State Council’s Development Research Center.

In most of the regions Liu has researched, however, peasants who migrate to cities tend to give their land to their parents or other family members to maintain small-scale cultivation. “They do not dare to give [the land] to outsiders,” Liu said.

Behind this mentality is a lack of protection of farmers’ use rights. They worry that once land is used by stranger, or temporarily under the guardianship of village collective organizations, the original user won’t be able to get it back, even if they return home to farm on it.

Reforming the land system has become a common discussion topic at executive meetings of the State Council following the 18th party congress.

The draft Amendments to the Land Management Act that has already been discussed in State Council executive meetings aims to increase compensation for land reclamations. Revisions to the Land Contracting Law have been moved ahead on the official agenda. Officials now intend to make the right to contract out land “permanent.”

Liu said that the ultimate direction of reforms to the land expropriation system will include fair compensation for land taken; taxation mechanisms that act to balance the differential distribution of income; and increasing the level of cooperation between farmers and the government, i.e. using part of expropriated land to construct municipal infrastructure, and part of it to sell at profit.

Farmers should be allowed to use the rest of their land for non-agricultural development, so they can directly benefit from urbanization. Also, land contracting rights and land operations rights, which allow commercial activities on the land, should be legally separated, and farmers should be granted the permanent right to contract out their land.

Dysfunctional protections

In principle, when a farmer enters a city and takes up work, he should then be allowed entry into that city’s social welfare system. The reality is that he isn’t.

According to a 2012 report published by the National Population and Family Planning Commission, 25.8% of the population is self-employed. Whether they own a small mom-and-pop store with no employees, run a small hawker stand or do part-time work, in theory they should be allowed access to the local social security system as working citizens.

However, many local governments still throw up numerous hurdles in the way of migrant workers with informal jobs based on the fact that their hukou, or household registration, not belong to the city.

Governments in other places establish independent commercial insurance systems specifically for migrant workers, but the fees tend to be high.

Take for example a hypothetical migrant laborer who sets up a hawker stall in the historical city of Xi’an, Shanxi Province.

Let’s say his monthly profits equal the city’s legally mandated minimum wage of 860 yuan. Under the “complete coverage” welfare system, he can pay from his own pocket to participate in Xi’an’s urban retirement pension and medical insurance system.

The base number used by insurance is the local average monthly salary, calculated now at 3,473 yuan a month. So for our hypothetical hawker to access pensions and medical insurance, he would have to pay 448 yuan per month, or 52% of his income.

“This has led to a ‘regressive’ fee payments,” said vice director of Tsinghua University’s School of Economics and Management Bai Chong’en. According to Bai, the lower one’s income, the higher the proportion of that income that is required for insurance, and the higher base fees are, the heavier the burden on the payers.

In total, 66.2% of migrant laborers are formal employs, and their employers are required to pay part of their insurances coverage, which many usually try to avoid.

In China, three-quarters of migrant workers are employed by private or family-owned businesses. According to the Population and Family Planning Commission 2012 report, fewer than 40% of individual business owners sign labor contracts with their employees.

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